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The Lowy Institute, with the support of GE and the DFAT-sponsored Australia-PNG Network, is hosting the Australia-Papua New Guinea Emerging Leaders Dialogue this week. The Dialogue, which seeks to develop deeper, people-to-people relations between Australia and its nearest neighbour, takes place at the end of a year in which the official relationship has taken a few hits.

The most recent came when an AFP officer alleged in the media last week that Australian police serving as advisers in Papua New Guinea were constrained because of the Manus processing centre. I won’t deal here with the other allegations the officer made, which have been refuted by the AFP, Papua New Guinea’s police commissioner and DFAT, and which changed in later interviews with the officer in question.

But the reference to Manus bears further analysis. A number of prominent commentators on Papua New Guinea have publicly and privately regretted the impact of the political imperative to maintain the Manus island refugee processing centre as a deterrent to future asylum seekers. The ANU’s Stephen Howes and I are on the public record saying that this imperative dissuades the Australian government from tackling tough issues in Papua New Guinea and constrains Australian policy options. Anti-corruption campaigner and head of the now de-funded Taskforce Sweep in Papua New Guinea, Sam Koim, has also cautioned about ignoring corruption at the highest levels in Papua New Guinea in order to preserve the O’Neill government’s cooperation with refugee resettlement processing and resettlement.

Are we right? Is Australian policy in Papua New Guinea beholden to its immigration policy?

If the processing centre in Manus were to be closed, would Australia be freer to publicly criticise the government of Papua New Guinea about the rule of law and the behaviour of its police force?

Australia has many reasons to maintain a friendly bilateral relationship with Papua New Guinea, including:

Papua New Guinea is Australia’s nearest neighbour. Its security is inextricably tied to Australia’s security. The 2013 Defence White Paper identified the security of Australia’s immediate neighbourhood (including Papua New Guinea) as the second of four key strategic interests.

Bilateral trade is worth $5.9 billion. Papua New Guinea is Australia’s 17th largest trading partner. Australia takes 36% of PNG’s exports and Australian goods account for 34% of PNG’s imports, making Australia by far Papua New Guinea’s leading trading partner. The stock of Australian investment in Papua New Guinea totals $18.9 billion.

Papua New Guinea is the largest bilateral recipient of Australian aid, with $554.6 million due to be disbursed this financial year. According to DFAT, Australian aid accounts for 68 per cent of total official development assistance received by Papua New Guinea and makes up 14 per cent of Australia’s total aid program.

According to DFAT, approximately 10,000 Australians live in Papua New Guinea. The latest Australian census shows about 15,000 Papua New Guineans living in Australia.

Australia’s colonial relationship with Papua New Guinea gives Australia special responsibilities. The 2015 Lowy Poll found 82% of Australians agree that ‘stability in Papua New Guinea is important to our national interest’ and 77% say ‘Australia has a moral obligation to help Papua New Guinea.’

Separately and together, these are good reasons not to risk damaging the bilateral relationship, regardless of whether Australia maintains the costly processing centre in Manus.

The Australian government is constrained from speaking out about the rule of law, corruption and human right abuses because it wants to avoid the risk the PNG government would renege on its agreement to process and resettle refugees. However, by far the most most important reason for Australia’s reticence is that the nature of the bilateral relationship has changed.

After the tense times of the Howard-Somare era, Australian leaders and foreign ministers have sought to put the relationship on a friendly and more equal footing. Prime Minister Kevin Rudd set the wheels of change in motion, showing overt respect to his elder counterpart Sir Michael Somare and agreeing to Somare’s request to focus more on the bilateral economic relationship and reform the aid relationship. When Peter O’Neill replaced Somare as Prime Minister, he quickly developed a friendly relationship Julia Gillard as prime minister and Rudd as foreign minister. O’Neill understood Australian politicians well. He convinced them he was the leader Papua New Guinea needed and that he could provide the regional leadership Australia needed, presenting a viable alternative to the then undemocratic Fiji.

Through these years, PNG’s economy strengthened, benefiting from the impact of ExxonMobil’s landmark LNG investment and high commodity prices, and it developed more substantial trade relationships with Asian countries. Foreign Minister Julie Bishop has worked harder than any of her predecessors to improve the relationship in an era when Papua New Guinea is no longer dependent on Australia. Peter O’Neill’s government has a relationship of trust with Canberra because of efforts on both sides. The Manus deal helped Prime Minister O’Neill gain some leverage over Canberra but the fundamentals of the bilateral relationship had changed before that deal was struck.

The relationship could certainly be better but at this particular juncture is hard to see how an Australian foreign minister could tackle the most difficult issues in a public way without risking another hit to the official relationship. In these challenging times, strong people-to-people and business-to-business relationships are more important than ever.